Our government isn’t for the people, it’s only for the rich people.

Last week it was announced that PMI, the largest mortgage insurance company in the country, was effectively shut down by the state of Arizona due to insolvency.

Before we go any further let’s clear up some confusion – PMI the company, was in the business of selling Private Mortgage Insurance, also known as PMI.  Going forward in this article, we’ll refer to the company via PMI, while spelling out private mortgage insurance.

The company has suffered too many losses from the foreclosure crisis, paying out too many claims on loans it covered with private mortgage insurance on.  The state of Arizona announced that the company will only be allowed to pay out 50% on filed claims.

I’ve read a few articles since the announcement where the writers (one of them a self-proclaimed mortgage expert) asked why should mortgage borrowers with PMI coverage keep paying their premiums if the company isn’t going to pay full claims.  Well, that’s a real ignorant question for so called experts to be asking.  Private mortgage insurance doesn’t insure borrowers, it insures lenders against a borrower default.  Borrowers do pay the monthly premiums, but the only beefit they receive is the lender allowing them to put less than 20% down.

I do see a few issues with the failure of PMI and the way it’s been handled so far.

1.  More losses for FNMA & FHLMC – which means more costs to taxpayers as the government took them over more than 2 years ago.  When a loan with private mortgage insurance fails, the lender files a claim with PMI to pay the difference between what the borrower owes at that time and about 80% of the purchase price or appraised value at the time the loan was made.  Lenders count on this mortgage insurance coverage to offset the higher risk of making loans with less than 20% down.  So a lender that has coverage from PMI will now get 50% less than they expected, which means more losses for the lender.  FNMA & FHLMC are now the largest holders of mortgages with private mortgage insurance coverage in the country.  So, their losses will be even higher.  It’s interesting that both just asked for several billions of dollars more in funds to cover losses this week – money that’s coming from taxpayers.

2.  If the losses for PMI keep piling up, it’s highly likely that the company may get a Bernanke Bailout.  To protect FNMA & FHLMC?  No, it’ll be to protect the Too-Big-To-Fail banks from more losses on the rest of the PMI covered loans in this country.  The TBTF banks will pay their Bernanke Bribe and get another get out of jail free bailout when the federal government bails out PMI to keep it from failing.

3.  I find it interesting that the state of Arizona shut down PMI, when most of their business crosses state lines, so the company should fall under the domain of the federal government.  I’ve got two thoughts on this:

    a)  Arizona got tired of waiting for the federal government to act and is forcing the issue.
    b)  Or, the federal government put Arizona up to this to give the feds an excuse to step in and take over.

In the end it really won’t matter which direction this issue takes – the end result is that the taxpayers will get saddled with more debt.

The story was actually picked up by several sites:

http://www.mortgageloan.com/3-components-best-mortgage-8471

http://www.woio.com/Global/story.asp?S=14204227

http://www.koamtv.com/Global/story.asp?S=14204227

http://www.hawaiinewsnow.com/Global/story.asp?S=14204227

http://www.wmbb.com/Global/story.asp?S=14204225

Let us know what you think!

3 Components for the “Best” Mortgage

By:

JR Hevron – MortgageLoan.com

You’ve applied for your mortgage to buy a home or to refinance, signed the application and turned in all the requested documentation.  Now, you wait and wait wondering what’s going on.

When will you be approved so you can schedule the movers?  Are you going to get approved & closed before that low interest rate goes away?  What did the home appraise for?

Tired of waiting, you call, get voicemail so you leave a message.  Then you’re back to waiting, waiting, waiting.

Real estate agents go through this same thing, waiting to hear from lenders about the status of the deal they put together.  Will it get approved and close so they can collect their commission check and pay their bills?

Over and over again , the number one complaint in the process of getting a mortgage is lack of communication.

Borrowers buying a home or refinancing AND real estate agents are always complaining that they have to contact the mortgage lender and then wait for a call back – if it ever comes.

As a professional, the one thing I stress to my Team is that one of the few things we really have control over is communication.  We can’t control appraised values, interest rate movements, requireed repairs or the numerous other issues that pop up during the loan approval process.  We can pick up the phone or send an email at any time to alleviate apprehension and frustration.

There are two ways to communicate - proactively and reactively.

I’d estimate that around 80% of communication in a real estate and/or mortgage transaction is reactionary.  Someone calls or sends an email (even text messages these days) and it’s responded to.

Not a very effective way to exceed expectations!

It’s so much better to proactively communicate.  It’s difficult to do though without a system and discipline.  Try to do it otherwise and you’ll soon end up in reaction mode again.

It’s funny that I’ve never been asked by a client how often our Team will communicate with them throughout the application process.  Everyone wants that low rate in the beginning, only worrying about being kept in the loop once they’re well into the approval process.

Even if you do ask about the level of communication to expect, how likely do you think it is that you’ll get an honest answer?  Ask about a communication plan and watch the curious looks you’ll get – it’ll be as if you’re speaking a foreign language.

That’s because most mortgage lenders don’t have a formal communication process!

If this is a concern to you, maybe we should talk.  We do have a formal system of communication.

It all starts with our Weekly Status Reports.   We email these out religiously every week.  We also send them out whenever we get a conditional or full approval.

What’s more, they’re designed to keep everyone involved in the transaction on the same page.  If there are real estate agents involved in a purchase, they get added to the email distribution list.  Get us the email address of the seller or title company and we’ll add them to the distribution list.

Now you may think we’re making all this up just to try to get your business.  I encourage you to look below at our Weekly Status Report Template that we use.

Then I challenge you to find a competitor that has something similar.

September 7th, 2010 HUD is changing the MIP fees it charges borrowers for FHA mortgages.

The changes are expected o generate an additional $300 million per MONTH for HUD’s FHA insurance program.

That’s an extra $3.6 billion per year.

Here are the changes:

First, HUD is lowering the upfront MIP from its current 2.25% to 1.0%.  This is the amount that can be financed on top of the loan amount.

Simultaneously, HUD is raising the monthly MIP amount:

• For loans with less than 5% down – from 0.55% to 0.85%.
• For loans with more than 5% down – from 0.50% to 0.90%

Now technically these changes only affect loans of more than 15 years, but in reality most FHA mortgages are 30 year loans.

How Do These Changes Affect Borrowers?

Let’s compare some different purchase price amounts to see what HUD done to homebuyers:

Note: all the examples below assume a 4.5% mortgage rate on a 30 fixed loan with the minimum 3.5% down.

Notice that at every purchase price amount the monthly cost has gone up!

This means that for any given monthly payment a buyer will now qualify for less of a purchase price due to the higher corresponding payment.

Just be glad HUD didn’t implement a FICO credit score pricing matrix as they have discussed numerous times.  Just be forewarned – if FHA foreclosures don’t improve soon, that may still be implemented.

Are there any borrower benefits at all in this change?

There is if you can pay off your FHA loan quicker.  Notice in the above chart that the actual financed amount & payment are lower under the new program.  This is because of the lower upfront MIP amount.

For example, for a $75,000 purchase price the old plan had a principal & interest payment of $374.97 versus $370.38 under the new plan.  That’s a savings of $4.59/month.

The easiest way to pay off an FHA mortgage would be to refinance to a FNMA or FHLMC conforming mortgage.  But you’d need at least 10% equity to do so and FNMA/FHLMC have price adjustments for FICO credit scores, so you’d have to be careful and consult with a true expert mortgage professional about this.

More Information

If you’d like more information on this change you can click on the links below:

FHA letter from David H. Stevens

HUD Press Release

Michigan, Mortgage, Expert, Birmingham, Bloomfield, Detroit, Rochester, Royal Oak, Troy

_______________________________________________________________

If you enjoyed my blog post,
I invite you to connect with me on the social networks below & subscribe to my blog!

“Referrals are Sending Someone You Care about, to Someone You Trust!”
So, forward this blog post to someone that’ll appreciate it!

_______________________________________________________________

Drew Sygit: CMPS, CMC, CRMS, CMLO, CALO, MBA, NAMB/MAMP Instructor & Speaker
The most Certified Mortgage Expert in the Midwest

Contact him for The Lending Edge
P: 248-356-3739 • F: 866-215-3755 • dsygit@TheLendingEdge.com • www.TheLendingEdge.com

My last post, Anyone Can Blog about Listings & Market Data – Where are YOU adding Value?,

led to so many great comments that I thought I’d write on the topic of added value.

So many of us have probably never sat down (or it’s time for a refresher) to figure out what value or Unique Selling Proposition (USP) we can offer our clients or can use to differentiate ourselves from our competition.

Take mortgages for example – it seems the majority of mortgage advertisements focus on either “lowest price” or “great service”.

A Google search of “lowest mortgage rate” leads to 5,910,000 results!

How can even 50% of the lenders out there all have the best price? 

It’s not possible, but it seems to work as “everyone’s” doing it.  A decent percentage of consumers actually believes enough in these ads that they do business with lenders that choose to focus on this message.  But, it’s not very unique and ultimately the consumer probably doesn’t end up doing business with a lender strictly because they claim the lowest price.

A very prophetic saying in sales is, “you sell price when you have nothing else to sell”.  What this means is that if you have no other value(s) to offer customers, you’re left with nothing but trying to get business by offering the lowest price.

So, what does that say about all these lenders claiming to have the lowest price?  I’ll let you think that over and come to your own conclusions.

The same applies to real estate brokers & agents advertising for business by promising low commissions.  A Google search for, “discount real estate commissions“, leads to 10,400,000 results. 

SIDE NOTE: it’s very interesting to encounter agents shopping for the lowest mortgage rates for their buyers.  Most of their buyers didn’t find the agent by shopping for the lowest commission!
Now what about “great service”?

Someone please define that for me in metrics that can be measured!

“Great service” is extremely subjective.  What satifies one does not satisfy all.

For example, my team sends out very detailed Weekly Status Reports that impress many, but not all agents and clients. 

So, what specifically really qualifies as ”great service” for everyone?

Is it being “available 24/7″?  That statement implies, but doesn’t necessarily mean, great service.  In fact, I could argue it implies the opposite.  If the expectations of most customers are properly managed, they won’t need to get ahold of someone late at night or on an off day.  I’ve also never heard of a “life or death” situation occuring in real estate that needed immediate attention.  Actually, very few situations can’t wait until 8 or 9 am the next day or Monday morning.  Most late night or weekend calls are little more than “hand-holding”.  Is this hand-holding great service?

How about free reports and free listings?  I suppose they mean something to some, but not all potential customers.

As you can see, great service is not that easy to specifically define. 
So, where does all this leave us?

I believe we all need to find our own USP, but understand we can’t be everything to everybody.  Once a USP is selected the message should be woven into everything we do. 

The challenge is developing a USP.  It’s fairly easy to look at someone’s blog or marketing materials and figure out if they have a clearly defined USP or not.  Those that do are typically leaders and top producers.

Fort those looking for a USP, here are some possibilities to consider:

• Knowledge – difficult to make people care
• Experience – same as above
• Fast service – offer a guarantee?
• Specific area specialist – city, town, waterfront, etc
• Specific property specialist – condo queen, vacant lots, mobile homes, etc
• Specific transaction specialist – refinancing, jumbo mortgages, short sales, REO, etc
• Exclusive buyers’ agent

I’d like to hear from a few agents and lenders out there what you think of USP’s and what’s yours!

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

I follow a lot of industry blogs. 

I prefer to read blogs with catchy titles that also make me laugh or think.  Believe it or not, they’re often pretty difficult to find!

Why?

Because too many industry blogs are solely about listings & market data with no analysis or added value.

Homebuyers & Sellers – this section is for You

If you’re reading this and you’re looking for an agent to represent you on a home purchase or for the sale of your home – how are you evaluating agents from their online presence?

Is it by who pops up the most on Google?  How about who’s most entertaining?   Or, is it by how knowledgeable they seem to be?

I’m sure all those items factor into evaluating who to choose to do business with. 

Just be sure not to confuse volume or the mere presentation of market data with actual expertise and market knowledge!  A true expert understands and interprets data.  That’s what you should be looking for.
 

My Listing’s Presentation is Better Than Yours

It seems posting about a listing is the first thing every agent does when they start blogging!  Unfortunately, few do it well and they all start to quickly look the same.

Ever hear the phrase, “you can’t be everything to everyone”?  Apparantly a lot of agents haven’t or have forgotten that phrase or what it means.  Many listing blog posts are pretty VANILLA as it appears they’re written to appeal to anyone & everyone – despite the fact that only one person will eventually buy the property.

Of course, many posts on listings are probably written solely to show the seller that their property has “maximum exposure” to get it sold.  That doesn’t mean a listing post can’t be well written and entertaining.

There are several books and articles written about how to analyze the features and shortcomings of a property and then discern the characteristics of potential buyers.  This is supposed to help agents focus on a narrow target market for better success, but it appears to be rarely done.

So, because they don’t know how to aim their marketing efforts, shotguns rule over rifles.

How come agents don’t get more creative & daring when presenting their listings? 

Why always several pics, a laundry list of features and a poorly written title?  Where’s the pizzazz?  The emotional words that will grab attention?  You can’t bake cookies and publish the aroma on the internet (yet) to help in selling a property.  You have to use words and creative pics.

By the way, did everyone forget that most buyers can find your listings at Realtor.com?  What is blogging about them supposed to do?  Get them more exposure than the thousands of dollars Realtor.com and the other related websites spend?

Have you ever read some of the comments written on listing posts?

“Nice house, good luck with the sale”.

“Hope it sells quick for you”

“Charming house and nice presentation”

Are those vanilla or what?  But what else can someone write in respone to a vanilla post?

Data Overload

Now let’s talk about market data.  Does anyone really think that in this “Age of Google”, that agents have some type of exclusive access or control of housing market data?

Have you been to Zillow or Trulia lately?  The public can Google just about any data they want these days – recent sales, foreclosures, short sales, school rankings, crime, sex offenders, etc.

It’s almost impossible to own data these days.

So, what do many agents do? 

They post data, sometimes including nice looking charts & graphs.

That’s just great, but what the heck are readers supposed to do with the data?

What’s it mean to a buyer?  To a seller?  Are they supposed to draw their own conclusions?

It’s no wonder agents aren’t highly thought of by the public!

What would happen if you took your sick child to a doctor and he said something like, “blood pressure is 90 over 130, temperature is 99.1 degrees, and they have swollen glands” – and that was it.  Didn’t offer a treatment, any suggestions to take care of the symptons or anything.

That’s what I think of everytime an agent posts data without bothering to analyze what it means for their patients, err, I mean clients or target market.

Where’s the expertise?  What are you’re clients paying you for?  To be their Best Friend Forever, or for at least as long as it takes to complete their transaction?
Be a Lean, Mean Blogging Machine!

The great thing about blogging is that you can find an audience for just about anything written.

A target market though, should be clearly defined as opposed to trying to be everything to everybody.

There’s nothing wrong with blogging about listings & market data and even vanilla blogs are better than no blogs at all.   Over time though, one should strive to improve their creativity and targeting to improve their results. 

Experiment, be daring with your posts and try to distance yourself from the herd.

Be true to yourself by not conforming.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

You’re looking for a home and/or mortgage, so you’ve started your search online like over 70% of consumers.

There’s so much information, it’s overwhelming.

A simple search like, “Birmingham Michigan Mortgage Rates“, returns 180,000 results!

How do companies and individuals stand out in that big of a crowd?

They all compete to be on the first page of Google as over 90% of those searching Google don’t look further than that. 

Does being on the first page of Google mean that company/person is an actual expert or the best one to call?

Not by any means. 

All a high Google ranking MAY imply is that:

• that company/person has put out enough content to be noticed by Google.  That doesn’t mean it’s good content though!
• the high ranking company/person hired a company to post content for them and do other things to manipulate them to the top – they’ve basically bought there way there.

So how can someone searching the web be sure their search leads them to the right expert?

Read the content associated with the company/person your search leads you to!

• Once you do that, several patterns emerge:
• You’ll see real estate agents that only post listings for sale.
• Other agents may only post sales data.
• Many lenders and loan officers only post interest rates.
• Too many basically just brag about how good they are.

True experts, the one’s you should hire, will show their expertise by doing more than the above.

Think about it this way, you don’t need a real estate agent to find homes advertised online for sale.  Information is also readily available online about sales data and trends.  Same goes for interest rates.

As I pointed out with the 180,000 search results for “Birmingham Michigan Mortgage Rates“, that’s way too much data to interpret.  That’s what you need an expert for.

A true expert will assist you in efficiently and logically understanding what the data means for your situation – whether buying or selling real estate or looking for a purchase or refinance mortgage.

Keep all this in mind the next time you search online for anything.

Experts earn that title, they don’t buy it.

BTW – as I’m considered an expertin my field and use that earned title to improve my Google rankings, I encourage you to check out my blog, website and fanpage to determine for yourself if I’m worthy of being called an “expert“:)

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

The act is meant to enhance consumer protection and reduce mortgage fraud.

The act requires states to license Loan Originators by:

• Passing a written qualified test
• Complete pre-licensure educational courses
• Take annual continuing education courses
• Having LO’s allow their credit to be checked
• Submitting LO fingerprints to the NMLS for criminal background checks via the FBI

The licensing and registration started in 2009.

So how are loan officers doing with the required testing?

NMLS released the following statistics as of June 30, 2010:

What stands out is that 71% of LO’s so far pass the national component part of the test on their first try and 80% pass the state component.  That’s a pretty good number.

On the other hand, only 44% of those that retake the test pass the national component.  That’s horrible! 

What’s this mean? 

Well if you take into account that the test really doesn’t change that much on the subsequent retakes it could mean any of the following:

• those retaking the test do poorly with tests
• they’re not very good at studying
• they have no idea what they’re doing to begin with

It’s estimated that the NMLS requirements have led to over half the LO’s to leave the mortgage business in the past year.

Of course, the economy has played a large role in that also.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

The issue – the agent had told them that because mortgage interest is tax deductible, their $1,000 rent payment compared to a $1500 house payment.

MORTGAGE, EXPERT, MICHIGAN, BIRMINGHAM, BLOOMFIELD, DETROIT, ROCHESTER, ROYAL OAK, TROY

I can only assume the agent was implying that they were in a 33% tax bracket to make that claim.  The buyers were never asked that information.

The bigger issue though was that the agent clearly had no understanding about how the mortgage interest tax deduction works.  They were just abusing a sales technique they’d picked up somewhere and never really learned about.

What did I have to clear up?  Well let’s take a look.

Assume the $1500 PITI breaks down like this:

P&I                             - $1,125
Property Tax         - $300
Home Insurance  – $75

This about works out for a 5% interest rate on a $210,000 loan.  Let’s ignore down payment & PMI for this example though.

Now intially this sounds like a fantastic deal.  Can’t you just hear the buyers, “wow honey, instead of paying $1,000 for this apartment, we can buy a $210,000 house for the same payment using the mortgage interest tax deduction!”

Well unfortunately, that’s not even close to the real story.

Here’s how the numbers actually work out.

The first year’s interest on the mortgage above would be approximately $10,430.  The annual property taxes would be $3600.

So the total ELIGIBLE for deducting on Schedule A of the 1040 would be $14,030. 

Now the agent in question would probably say that since the buyers were in a 33% tax bracket, they could write off, and thereby save, $14,030 x 33% = $4630.

Not true!

Look at the image of Page 2 of the 1040 tax return below:

Notice that the “Married Filing Jointly” Standard deduction in the left column of the page is $11,400.

Line 40 of the 1040 states, “ (from Schedule A) or your standard deduction Itemized deductions”.  So you would enter the higher number on line 40.

What this means is that the buyers get an $11,400 tax deduction whether they own a home or not!  

The only time you’d put your Schedule A total on line 40 would be if it exceeded $11,400.

So the couple’s actual benefit from owning the home in this example would only be:

                 $14,030 – $11,400 = $2,630 x 33% = $867

A drastic difference from what their agent had ignorantly misled them with.

I’ve seen mortgage people make a version of this mistake also by telling clients, “that 5% interest rate is really 3.35% after taking into account your 33% tax bracket.” (that’s 5% x (1-0.33))

Keep in mind that our example was based on a $210,000 mortgage.  I’ve heard agents using this same technique on deals under $100,000 – where the buyer wouldn’t realize any additional tax savings whatsoever.

The true professionals in our industry really need to know the facts about tax deductions to avoid making any misleading statements. 

The best way to handle this tax issue is for buyers to take the tax deduction savings issue up with their CPA.  If you don’t have a CPA, contact me for a referral!